Question

Briarcrest Condiments is a
spice-making firm. Recently, it developed a new process for
producing spices. The process requires new machinery that would
cost $2,419,028. have a life of five years, and would produce the
cash flows shown in the following table.

Archer Daniels Midland
Company is considering buying a new farm that it plans to operate
for 10 years. The farm will require an initial investment of $11.90
million. This investment will consist of $2.10 million for land and
$9.80 million for trucks and other equipment. The land, all trucks,
and all other equipment is expected to be sold at the end of 10
years at a price of $5.20 million, $2.24 million above book value.
The farm is expected to produce revenue of $2.10 million each year,
and annual cash flow from operations equals $1.94 million. The
marginal tax rate is 35 percent, and the appropriate discount rate
is 10 percent. Calculate the NPV of this investment. (Round
intermediate calculations and final answer to 2 decimal places,
e.g. 15.25.)

NPV
$ _____

The project should
be accepted or rejected

Bell Mountain Vineyards is
considering updating its current manual accounting system with a
high-end electronic system. While the new accounting system would
save the company money, the cost of the system continues to
decline. The Bell Mountain%u2019s opportunity cost of capital is
10.9 percent, and the costs and values of investments made at
different times in the future are as follows:

Year
Cost Value of Future Savings

(at time of
purchase)

0 $5,000
$7,000

1
4,700
7,000

2
4,400
7,000

3
4,100
7,000

4
3,800
7,000

5
3,500
7,000

Calculate the NPV of each
choice. (Round answers to the nearest whole dollar, e.g.
5,275.)

The NPV of each choice
is:

NPV0 = $

NPV1 = $

NPV2 = $

NPV3 = $

NPV4 = $

NPV5 = $

Suggest when should Bell Mountain buy the new accounting
system?

Bell Mountain should
purchase the system in year1, year 2, year 3, year 4, year
5

Chip%u2019s Home Brew
Whiskey management forecasts that if the firm sells each bottle of
Snake-Bite for $20, then the demand for the product will be 15,000
bottles per year, whereas sales will be 88 percent as high if the
price is raised 9 percent. Chip%u2019s variable cost per bottle is
$10, and the total fixed cash cost for the year is $100,000.
Depreciation and amortization charges are $20,000, and the firm has
a 30 percent marginal tax rate. Management anticipates an increased
working capital need of $3,000 for the year. What will be the
effect of the price increase on the firm%u2019s FCF for the year?
(Round answers to nearest whole dollar, e.g. 5,275.)

At $20 per bottle the
Chip%u2019s FCF is $ __________ and at the new price Chip%u2019s
FCF is $ _______

Capital Co. has a capital
structure, based on current market values, that consists of 37
percent debt, 17 percent preferred stock, and 46 percent common
stock. If the returns required by investors are 9 percent, 13
percent, and 18 percent for the debt, preferred stock, and common
stock, respectively, what is Capital%u2019s after-tax WACC? Assume
that the firm%u2019s marginal tax rate is 40 percent. (Round
intermediate calculations to 4 decimal places, e.g. 1.2514 and
final answer to 2 decimal places, e.g. 15.25%.)